Is Canada Ready for Legal Marijuana?

The Canadian government is expected to legalize recreational marijuana by July 2018. Credit Robert F. Bukaty/Associated Press

Black-market marijuana has been very good for Michael.

For 22 years, he has grown and sold the stuff in and around Montreal. An illegal activity punishable by up to life in prison, selling the pungent bounty that he cultivates in his basement has nonetheless given Michael the sheen of middle-class respectability (though he would not give me his real name for fear of legal repercussions).

Marijuana paid for the bungalow and a half-acre of land in a Montreal suburb. It paid for vacations, golf memberships and his Mercedes. In his bachelor years, it paid for his copious restaurant bills. Now it keeps his young children in hockey gear.

In the mid-1990s, a time of tight supply and higher stakes, he was selling a pound for $2,500 and grossing $395,000 a year. The price has nearly halved since then, but Michael still lives very comfortably. A bar manager by trade and for appearances, the 47-year-old said that 90 percent of his income is derived from selling marijuana.

The Canadian government is expected to legalize recreational marijuana by July 2018, in large part to put an end to the extensive and enduring black market for the drug on which people like Michael have thrived. Canadian businesses are anticipating a windfall. A 2016 Deloitte report estimated the legal Canadian marijuana market will be worth $18 billion annually.

Far from bemoaning the potential end to his livelihood, Michael says he cannot wait for marijuana to be legalized.

“We all want to transition to legal,” Michael said. “I want to do this without looking over my shoulder all the time. I want regulation and quality control. I want to pay taxes.”

Longtime growers like Michael say their experience in the field, however illicit, gives them an advantage over the many large, deep-pocketed operations that have already set up across the country in anticipation of legalization. Given the chance, they say they can be the marijuana equivalent of the craft beer market, in which taste, smell and feel matter nearly as much as narcotic effect.

“When legalization happens, people will be able to get their weed at the ‘dépanneur,’ ” said a woman who goes by the name Betty Cracker, using a Québécois term for corner store. “But I have 10 years’ experience, and I can refine my niche to get into the new market. You have to be creative.”

Betty, 34, packages her sumptuous-looking baked goods as though they sprang from a high-end bakery, and delivers them personally to her clients. In a legal market, she could have access to capital and take credit cards.

Yet because her business is illegal, she cooks in her own kitchen with an often jury-rigged supply line of marijuana and an understandable sense of paranoia.

“I want to evolve and give the best product, which means testing and consistency,” she said. “Right now, it’s very hard to be consistent. It’s still a punishable offense, and they are still enforcing the law on people like me.”

Big business, however, has perked up. Just over a third of the 54 licensed producers — growers and sellers who trade in medical marijuana, and will be able to do so for the recreational market once it is legalized — are publicly traded companies. The three biggest have a combined market cap of over $2.5 billion. Some are internationally owned, and most if not all have an eye on the recreational market.

The reason is the demand for cannabis, which is expected to be at least 600,000 kilograms a year — about 1.32 million pounds — according to the Deloitte study. (The country’s 54 licensed producers currently produce about 20,000 pounds of dried marijuana a year.) With more than 12 percent of Canadians 15 and older (nearly 3.5 million people) reporting to have used cannabis in the past year, according to a 2012 report, many people are worried about a bottleneck in supply.

Unlike the Canadian booze magnates of yore, who used their heft to muscle out smaller players once alcohol became legal in the United States following Prohibition, several of the bigger marijuana companies say they would potentially welcome, and even buy from, growers like Michael.

Others, too, see a business upside to legalization. Under the proposed law, Canadians of legal age will be allowed to grow up to four marijuana plants for their own consumption. The market has already responded in kind with several companies selling home kits, phone apps and growing advice to the millions of potential amateur green thumbs across the country.

The challenge for anyone wanting to go legal is getting a license to do so. Becoming a licensed producer is a marathon exercise in bureaucracy that can take up to three years. A license also requires a criminal-background check. Michael, who served a nine-month jail sentence in 2005 for marijuana trafficking, said this could keep him out of the legal system.

It is one of the quandaries of legalizing marijuana, which has been illegal in Canada since 1923. Many of the people with expertise in coaxing quality marijuana from the earth have criminal records, which would potentially keep them out of the legal market.

The federal government is keenly aware of the problems. Health Canada recently streamlined the licensing process, allowing for increased growing capacity among existing license holders and shorter delays for applicants. Depending on the circumstances, the government may also be willing to overlook a few past weed-related indiscretions for would-be licensees.

This is the carrot end of the equation. The stick: up to 14 years in jail for selling or distributing marijuana.

Michael wants to go legal, but he’ll stay in the black market if need be. Legal weed, he pointed out, will be subject to government inspections and quality-control standards. All of this will make it more expensive. A gram of weed costs Canopy Growth Corporation, the country’s largest marijuana company, $2.30 to produce, according to the company’s recent financial statements, and will be subject to both federal and provincial sales tax.

In his basement, Michael can grow a gram of Headbanger — “Indica-heavy strain, very heavy stone, don’t smoke it during the day,” he says — for about 40 cents, tax-free.

He’ll just have to keep looking over his shoulder.

Martin Patriquin is a columnist for iPolitics.

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